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Pound Sterling has plunged against the US dollar after the Bank of England rate hiked interest rates to its highest level in 14 years. Sterling slumped immediately after the announcement, which has seen interest rates jump by 0.5 percent from 2.25 percent from 1.75 percent. The British currency had risen to just below $1.15 minutes news of the interest hike was announced. But it quickly nosedived to as low as $1.1443 before recovering slightly to $1.1457. 

On Wednesday, the pound had already plunged to its lowest since 1985 against the US dollar after a decision from the Federal Reserve to raise its key rate by three quarters of a percentage point.

After the interest rate hike today, the Bank of England said it would continue to “respond forcefully, as necessary” to inflation, despite the economy entering recession.

The central bank has forecast a slight 0.1 percent fall in the UK during the current third quarter.

This is partly due to the extra public holiday for Queen Elizabeth’s funeral – which, combined with a fall in output in the second quarter, meets the definition of a technical recession.

The BoE’s Monetary Policy Committee voted by a margin of 5-4 to raise rates to 2.25 percent.

Deputy Governor Dave Ramsden and external MPC members Jonathan Haskel and Catherine Mann voted for a hike of 2.5 percent, while new member pushed for a smaller rise to two percent.

Financial markets had been fearful of a 0.75 percent hike from the BoE, which would have been the biggest since 1989.

The BoE said: “Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary.”